International audit regulators call for improvement in audit quality by 2019
08 Mar, 2016
The International Forum of Independent Audit Regulators (IFIAR) has today published ‘International Forum of Independent Audit Regulators – Report on 2015 survey of inspection findings’ (“the report"). IFIAR highlights that as a result of persistent deficiencies in key areas of global public company audits more needs to be done to address what it calls as “shortfalls” in audit quality.
IFIAR comprises 51 independent audit regulators from jurisdictions in Africa, the Americas, Asia, Europe, the Middle East and Oceania. IFIAR provides a forum for regulators to share knowledge of the audit market and share the practical experience gained from their independent audit regulatory activity. The Financial Reporting Council (FRC) is a member.
The report summarises the key inspection findings from audits of public companies (including systematically important financial institutions) as well as from reviews of audit firms’ own quality control systems. Findings were submitted from the most recent audit inspection reports of members that ended by June 2015.
The report identifies that the highest number of audit inspection deficiencies were in the areas of internal control testing, fair value measurement, risk assessment and revenue recognition. In particular, deficiencies relating to audit of internal controls were identified in 23% of PIEs inspected.
For audits of systemically important financial institutions, including global banks and insurers, the survey found the highest number of deficiencies related to internal control testing, auditing of allowance for loan losses and loan impairments, auditing the valuation of investments and securities and the use of experts and specialists.
IFIAR and the six largest network firms have now agreed on an initiative to improve audit quality globally. The goal is to reduce the number of deficient audits reported by our members in the survey. To provide a means to measure progress, for the first time IFIAR's working group has set a measurable target for the reduction of audits with findings: a reduction of at least 25% in the next four years in audits with at least one finding as reported by the members of this working group.
In May 2015 the FRC published its own report of audit quality inspection work carried out by its Audit Quality Review (AQR) team. The report indicated that “audit quality is improving” but identified that “there is room for further improvement”.
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